Profit from Both the Long and the Short

03/25/2013 9:45 am EST


Joseph Parnes of ShorteX likes the share movement of two tech companies, but advocates shorting the stocks of both a solar and resource company.

Two companies I like for the long side:

Pegasystems (PEGA) is a developer and marketer of software (PegaCloud), and is benefiting from higher demand for its software from both existing and new customers. The company posted fourth-quarter earnings of $20.4 million, or 53 cents per share, compared to a loss of $11.9 million (or 5 cents per share).

PEGA expects adjusted 2013 profit of $1.20 per share on revenue of $510 million, vs. the consensus of 88 cents per share on revenue of $477.8 million. The shares are rocketing through primary resistance at $24 to $25. They could see challenging secondary resistance at $31 to $32.

3D Systems (DDD) makes 3D printing systems, using 3D software in a layer-by-layer printing process. The company’s fourth-quarter earnings rose to $10.9 million from $8 million. EPS was 39 cents per share, excluding items and adjusting for a 3-2 split. Gross margin was 51.7%, and backlog increased 23%.

3D’s guidance for 2013 is $1 to $1.15 per share on revenue of $440 to $485 million. The drop was too sharp. Secondary support sits at $27.50 to $29.30. Short covering is causing a v-shaped reversal, and the shares are volatile.

And two shares I like for the short side:

First Solar (FSLR), the Chinese solar company, is shocking investors and traders with weak operating cash flow, disappointing return on equity (ROE), deteriorating net income, and feeble growth in EPS.

Shares are plunging through primary support at $30 to $32. We could see a decline in its relative strength. Heading toward secondary support at $20 to $22 is a possibility.

Cliffs Natural Resources (CLF) swung to a loss in the fourth quarter, with revenue slipping. Slashing its dividend by 76% is not a good sign.

Shares are tumbling by 18%-plus, with heavy volume, which is indicative of exiting/distribution. The stock has broken down through primary support at $28 to $30, possibly heading to secondary support at $16 to $17.

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